Those Pesky Price Increases

The government issued its monthly report this morning on inflation.  Prices rose at a slightly faster rate than expected.  The core number went up by 0.3% for the month rather than 0.2%.  (The core omits things like energy which gyrate up and down and distort the overall number.)  As a result, the stock market futures plummeted.  The Dow futures were up about 135 points just before the news was released.  Ten minutes later they were down about 350 point, a move of almost 500 points.  Stocks have recovered a bit in the few minutes after that plunge, but the fear in the market is clear.  Some people worry that these price numbers will push the Federal Reserve to increase interest rates more quickly, and that could hurt corporate profits or slow the economy.

Today's reaction to the inflation figures shows a silly side to the markets.  We have a one-month report that is slightly higher than what the "experts" predicted.  It's just one month.  More important, it's just a tenth of a percent; that could be less or more due to rounding.  It also could be something that will be adjusted in next month's report as more data comes in.  The idea that a slight difference in one report from what some people expected should move the stock market demonstrates that too many investors simply cannot take a long view.  Indeed, they seem unable to even take a short term view; they are stuck with an instantaneous view.  If price rises continue at the latest levels for four or six months, then there's a trend.  Otherwise, they are meaningless in the real world, but not to the stock traders.